* Cautious optimism to buoy annual trading bash * Fears industry's comeback may be protracted * Worries linger over huge distillate surplus, contango By Jennifer Tan SINGAPORE, Oct 29 (Reuters) - The annual get-together of Asia's oil traders will probably be a more upbeat affair this time, as oil's climb towards $80 a barrel and a hiring upswing suggest the industry is poised to rebound from a year-long slump. Gloom shrouded the sector in 2008 as the global credit crisis ushered in the worst financial downturn in decades, bringing a plunge in crude prices from record peaks, shrinking refining margins and dwindling trade volumes. But tentative optimism has since emerged that the industry could be turning the corner, with oil hitting a fresh 2009 peak last week, following an out-of-season round of job-swapping in Asia's oil and commodities trading circles in summer. "Oil prices are higher. Demand-wise, it can't get any worse, so there is some optimism going forward, and probably it will be a better atmosphere than last year," said a gas oil trader. For a graphic of oil's year-on-year performance over the past 12 months, click: here But the industry's comeback could be protracted. The outlook remains clouded by persistently weak diesel demand, creating a huge surplus in distillates, the bulk of which are stored on ships off Europe and the Mediterranean, as hopes turn towards a harsh winter in the West to help ease the glut. There are also fears higher oil prices could crimp the budding rebound in the global economy. China's economy expanded as expected in the third quarter, led by a surge in investment and bank lending, but mixed data from the U.S. indicate a slow, if not patchy, improvement. The three-day Asia Pacific Petroleum Conference (APPEC) kicks off on Tuesday with a discussion forum and more than two dozen evening bashes at lavish hotels, ranging from the Ritz Carlton to the Four Seasons and the Fullerton. "I guess all of us will be thinking about the pace of economic recovery, whether there might be a double-dip recession, though most are leaning towards a sluggish jobless recovery," said a distillates trader at a refining firm. Suggestions of a potential upturn emerged as early as June, as investment banks such as JPMorgan Chase (JPM.N: Quote, Profile, Research) and Bank of America Merrill Lynch (BAC.N: Quote, Profile, Research) went on a hiring spree. This triggered a round of job-switching, ending the uncertainties and anxieties that had frozen corporate expansion plans. Asian energy firms have resumed expansion plans and bolstered their infrastructure, while some, such as PetroChina (0857.HK: Quote, Profile, Research) have gone on a buying binge for assets in Singapore, Canada and Scotland. Such news has rekindled hopes of fatter trading bonuses. "Some people will get better bonuses than they did last year, especially the bank guys who went from heaven to hell and back to heaven," said one Asian trader. "Just some, not all. But the physical guys have a tough time this year, with poor end-user demand and crunched margins." HIGH PRICES, CONTANGO Signs are also emerging that the sustained build in U.S. oil and product stocks could finally be easing, giving a lift to sentiment, as some weather experts bet on a weak El Nino cycle to usher in the coldest winter since the early 1980s for the U.S. northeast, the top regional consumer of heating oil. [EIA/S] While a weak U.S. dollar, the wave of positive corporate earnings and optimism over an improvement in the economy have helped propel oil to a year-high of $82 a barrel last week, more than double last December's low, worries linger that crude's spike could derail the fragile rebound. "The question on everyone's mind is: Will the rapid rise in oil be the final nail in the coffin for many companies and damage the economic recovery?" said a regional fuel oil trader. "Hype-inflated commodities was part of the reason that the market crapped out in the first place." Many also fret about the year-long contango cycle in oil markets, especially in middle distillates. "Distillate demand, especially jet fuel, is still weak and is unlikely to pick up in the near future. Crude prices could rise to $80-$85 a barrel by year-end, which will add pressure to end users such as airlines," added another distillates trader. But the contango structure has been good news for the likes of Dutch bank ING (ING.AS: Quote, Profile, Research) and Japan's Sumitomo Mitsui Bank (8316.T: Quote, Profile, Research). The banks have been financing lucrative contango plays in Asia since early this year, as poor prompt demand spurs traders to store crude and oil products at sea for future sale. By September, some 64 million barrels of distillates was being stored on the water globally, and this figure is still rising as demand remains anaemic, shipbrokers and traders said. For a graphic of distillates stored on tankers, click: here "One big question at APPEC is how much oil is on floating storage, and what will happen to the market when all of that gets liquidated," said a regional gas oil trader. (Additional reporting by Felicia Loo, Yaw Yan Chong and Ryan Siew; Editing by Ramthan Hussain)

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